Getting fiscal about getting physical

With the spread of Covid-19 dominating the headlines, health is understandably on people’s minds. So, we’ve decided to make this wellness-themed.

We recently gave an overview of the streaming media industry. Now we’ll examine another industry that seems to have popped up seemingly overnight: exercise equipment.

Sure, there were always weight machines, and every exercise guru it seems had invented some variation of a treadmill which, they were certain, would make aerobic workouts less tedious. (Still waiting.)

But over the past year, there has been an explosion of awareness of, and investment in, the exercise equipment industry, and you can work up a sweat just trying to stay informed about.

The game

This was a $10 billion-per-year global business that was growing more than 4% annually even before the current surge of awareness. Oddly, this new wave seems to be driven not by fitness enthusiasts, but by regular people who are often sedentary and overburdened by work. It’s no mystery why the manufacturers sell so much more cardiovascular equipment than strength-training equipment.

“Rapid change in the consumer lifestyle due to busy working schedules and unhealthy food consumption drives the fitness equipment market growth,” according to a Global Market Insights report. “Transition in the living habits across the globe is leading to an increase in the rate of chronic diseases and obesity, further creating the need for exercise and fitness among youngsters.”

Also, you’d think that gym equipment would be bought up mostly by, well, gyms. And yet health clubs are among the slowest-expanding segments of the market. They’re eclipsed by the growth from hotels, which in turn is eclipsed by growth from offices.

The fastest-growing region has been Asia-Pacific according to Allied Market Research’s 2018 report, which looks forward to 6.7% annual growth through 2025. That, of course, was pre-Covid-19, so who really knows? What is known is that growth in the U.S. is less than 1% per year.

The players

And yet what’s capturing mindshare these days is the home fitness market, which is now almost as large as the one for health clubs, and that’s in large part due to one new entrant: Peloton.

Peloton: Essential home fitness equipment, or the world’s most expensive coatrack. Up to you.

In 2013 this New York-based company started offering one innovative twist on the age-old stationary bike: Rather than working out alone in your home, you were in essence video-conferenced in to a spin class, with the instructor streaming at you from Peloton’s fitness studio.

From a revenue perspective, that means consumers don’t just buy the bike, they also have to subscribe.

And, while much is made of it being funded on Kickstarter, that might just have been a marketing ploy to presell units that would cost more than $2,000 each and were still on the drawing board at the time. The founders had already raised almost $4 million. Five years, five funding rounds and $5 billion later, they were ready to launch an IPO. A Peloton treadmill is already on the market, with a rowing machine expected this year.

Peloton’s rapid growth and pervasive media presence has already installed it in the upper echelon of the gym equipment industry. The current fiscal year is expected to be the first one in which it breaches $1 billion in sales. It is already outselling Technogym, the Italian firm that targets high-performance athletes, and has more than twice the revenue of U.S.-based Nautilus which, in addition to its own name brand, also owns Bowflex, Universal and Schwinn. Privately held Johnson Health Tech, headquartered in Taiwan, is also a major global player, comprised of Horizon, Matrix, Vision and other brands. Similarly, private ICON Health & Fitness owns NordicTrack, Gold’s Gym and other elements of the fitness value chain.

But the biggest exercise equipment company in the world is probably Finland’s Amer Sports, which takes in around $3 billion per year. If you’ve never heard of Amer Sports, that’s because the conglomerate is doing its job well and not detracting from such portfolio companies as Wilson, Louisville Slugger, MacGregor and Precor – the last of which is the firm’s only pure-play exercise equipment manufacturer as opposed to sports gear makers.

Finland’s Amer Sports is the biggest exercise equipment company in the world. Credit: Markus Spiske from Pixabay

U.S.-based Brunswick owns Cybex and Life Fitness, and yet these properties are almost rounding errors to the $4 billion-per-year company, which has a lot more to do with the boating business.

The scorecard

And yet it’s Peloton we all talk about.

That’s because it’s caught a wave, but it’s not impossible to see which way that wave is going. It’s toward interactive technology.

Streaming classes was brilliant, but it’s not the only innovation that’s available to that company or any of its competitors. Every player in the business is looking not only at streaming, but at other opportunities to engage with Millennials.

That is, they’re looking to get on their phones and watches. Apps and wearable tech are the next paradigm in online coaching, which is now an indispensable part of the workout experience. (It’s not a new concept, of course. George Orwell thought of it when he wrote 1984.)

Which of these companies will be next through the gate with a game-changing technology? Which has the management talent to actually capitalize on it? And which will be able to turn that market share into value for investors? Maybe it’s one of the ones mentioned above, or maybe it’s a second-tier company we didn’t discuss, or maybe it’s still crowdfunding on Kickstarter and we haven’t even heard of it yet. To help answer these questions and explore the concept, it would be best to speak with an experienced financial professional.

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